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Why Sprouts Farmers Market Inc. Stock Tumbled Wednesday

By Jeremy Bowman – Sep 7, 2016 at 12:43PM

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The organic grocery chain sharply reduced its guidance due to competitive pressures and food price deflation.

Image Source: Sprouts Farmers Market.

What happened

Shares of Sprouts Farmers Market Inc. (SFM -3.70%) were getting sold off Wednesday after the organic grocer lowered its guidance for the current quarter and full year. As of 12:40 p.m. EDT, the stock was down 13.6%.

So what

Ahead of its participation in the Global Retailing Conference Thursday, Sprouts dumped the bad news today, blaming its newly weakened outlook on ongoing food price deflation and an increased promotional environment.

The company now foresees flat comparable-sales growth for the current quarter, with a growth forecast in the 1.5% to 2.5% range for the full year, down from the 3.5% to 4.5% range it gave previously, and earnings per share of $0.83 to $0.86, down from the previous range of $0.96 to $0.98.

Separately, the company authorized a $250 million share buyback program; it completed its prior share buyback program in July. Repurchasing shares is common tactic for companies that believe their stock is undervalued. The new authorization is worth about 8% of the company's total market value.

Now what

The market's reaction is unsurprising after such a sharp guidance cut, as the current EPS range now signals a slight decline in profits for the year. While peers like Whole Foods and Fresh Market struggled in recent quarters, Sprouts had outperformed the industry. Now, that appears to be changing. It's unclear if this reflects an industrywide shift, or something that's only afflicting Sprouts. 

The market, however, seems to believe it's an segment-wide problem, as Whole Foods shares fell as well, down 5.7%, and Kroger dropped 4.7% as of 12:40 p.m. Expect Sprouts to elaborate on its predicament Thursday at the Goldman Sachs conference, but for now it's hard to spin this news any other way but negative.

 

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Sprouts Farmers Market Stock Quote
Sprouts Farmers Market
SFM
$27.09 (-3.70%) $-1.04
Goldman Sachs Stock Quote
Goldman Sachs
GS
$309.00 (-1.86%) $-5.87
Kroger Stock Quote
Kroger
KR
$44.60 (-0.22%) $0.10
Whole Foods Market, Inc. Stock Quote
Whole Foods Market, Inc.
WFM

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